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Severance payments for departing senior staff must not reward poor performance, while confidentiality agreements should be “the exception rather than the norm”, English universities have been told.

New guidance issued by the Higher Education Funding Council for England says that the increasing attention paid to generous pay-offs made in recent years “poses questions over the proper use of funds and assets, and may impact on the reputation” of institutions and the sector as a whole.

In a letter to universities, Madeleine Atkins, Hefce’s chief executive, says that decisions about such payments should be guided by seven principles: selflessness, integrity, objectivity, accountability, openness, honesty and leadership.

Enhancements to severance packages “should not as a rule be provided out of public funds”, says Professor Atkins, while universities that have charitable status should ensure that non-public funds are used “only to further the [institution’s] charitable purposes”.

Professor Atkins adds that an institution making severance payments “needs to ensure that it is being fair and equitable in its decision-making about different groups of staff”, and that “final-year salaries should not be inflated to boost pension benefits”.

Hefce expresses particular anxiety about the treatment of senior staff who leave an institution in controversial circumstances.

“When a severance arises following poor performance on the part of an individual, any payment should be proportionate, and there should be no perception that poor performance is being rewarded,” Professor Atkins writes.

The other key area of concern is the use of confidentiality clauses which, in return for payment to the departing staff member, require both sides to keep the terms of the agreement secret.

“Our guidance…is that compromise agreements that include confidentiality clauses are acceptable but they should be the exception rather than the norm,” Professor Atkins says. “Any confidentiality clause should not prevent the wider public interest being served, and any undertakings about confidentiality should leave severance transactions open to adequate public scrutiny.”

The guidance concludes that “each case is unique and has to be judged on its merits”.

“On occasions it might be difficult, for example, to strike a balance between a particular level of payment and the risk of greater cost should a case end up at an employment tribunal,” Professor Atkins writes. “At the same time, severance payments should not substitute for addressing poor performance.”

Vice-chancellors of several English universities have received sizeable pay-offs on leaving office in recent years. Wendy Purcell, former vice-chancellor of Plymouth University, received £45,000 in performance-related pay and another £125,000 for loss of office in 2014-15 as she switched to being the institution’s president on her full salary, following significant turmoil.